By Kim Young-gyo
HONG KONG, Oct. 29 (Yonhap) -- China's once-in-a-decade power transition will pose both opportunities and risks for South Korea, whose export-led economy has grown more dependent on its neighboring country, China watchers said Monday.
A new generation of Chinese leaders headed by incumbent Vice President Xi Jinping is set to take over from the current ruling elite during the Chinese Communist Party's 18th National Congress scheduled to start on Nov. 8.
South Korea stands to benefit greatly from the incoming Chinese leader's expected emphasis on the consumption-driven economy and urbanization, but at the same time will see increased challenges from local firms, the watchers said.
"China's fifth-generation leaders will succeed their predecessors' moves to boost the weight of consumption in the Chinese economy," said Yun Hang-jin, an economist for Korea Investment & Securities.
"It will result in the expansion of the middle-income class and, therefore, domestic consumption."
Yun predicted that South Korean firms, which have already established their presence in China, will maintain their competitiveness.
"Thanks to Chinese consumers' relative preference for South Korea's quality products, South Korean high-tech, cosmetics, food and clothing companies will continue to be beneficiaries," he said.
Some experts said South Korean firms will face increased hardships, being embroiled in fierce competition with domestic Chinese firms.
"The accession of Xi Jinping to the top means the accession of the taizidang or the 'Princeling' faction," said a financial expert in Hong Kong, asking for anonymity due to the sensitivity of the matter.
The taizidang refers to a political faction of the Chinese communist party that consists of the descendants of prominent and influential senior communist officials.
"The Princelings show a strong tendency of cronyism, which could be played against the South Korean firms," he said.
"They could even further press South Korean firms to set up joint ventures or to transfer technologies to local firms."
Park Sang-kyu with Busan Securities said South Korean exporters need to shrewdly shift their eyes to consumer goods and raw materials from capital goods.
Capital goods are goods, such as equipment and machinery, used to produce end-result goods or services.
"Since 2005, China's imports of consumer goods and raw materials have been steadily increasing," said Park.
The imports of consumer goods accounted for 4.1 percent in 2011, compared to 3.5 percent in 2005. The imports of raw materials jumped 13.1 percentage points to 30.5 percent in 2011 from 17.4 percent in 2005.
The jump is attributable to China's continuous measures to bolster domestic consumption as well as to the urbanization that has been taking place in inner China, the analyst said, adding that such a trend will accelerate in the next ten years.
"In past few years, the growth of South Korea's exports to China have been slower than the growth of China's imports. The growth gap has been widening since 2010," Park noted.
"This can be seen as a matter of concern for South Korea, but at the same time as a great room of potential for South Korean consumer goods exports."
South Korea is one of China's important trading partners, with bilateral trade expected to reach US$300 billion by 2015.
China is the biggest exporting market for South Korea, accounting for 23.2 percent of total exports, followed by the U.S. with 10 percent, Japan with 5.8 percent and Hong Kong with 5.3 percent.
China makes up 16.8 percent of South Korea's imports, followed by Japan with 15.3 percent and the U.S. with 9 percent.
South Korea mainly exports to China petrochemicals, semiconductors, equipments, ships, vehicles and electronics, while China's major exports include agriculture products, coal, steel, electronics, textile and apparel, and chemicals.
In May this year, the two countries announced the start of free trade negotiations, setting in motion a process to tear down trade barriers between two of Asia's biggest economies.
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